Gaming and in-game currency transfers

Open Gaming Model

Open Banking as a concept was brought to the forefront of FinTech and Financial services companies through PSD2 in the UK. This act was aimed at making transactions between banks and/or non-banks more seamless, safer for consumers, and more readily available to all. As a result, the banking sector in the UK and Europe began to become more consumer protection friendly and, while not the cause of regulations like the General Data Protection Regulation (GDPR), went hand-in-hand with the concept. The idea that banks could interact with each other in service of the customer was further championed by the hypergrowth from Plaid and services like Mint in the US. Consumers are polygamous with their banks. We, as bank and financial service users, treat financial services as commodities where we reward the best value with the use of our funds and our trust.

Taking my time in FinTech, I thought I’d apply this model to Gaming for several reasons, but the main one being that the principle that gamers, too, are polygamous with the games they play. There may be people out there who fall into the niche of playing only one game or playing only one studio’s games, but I don’t believe this to be the case. So I thought to myself “what would make gaming more open and more interactive in a way to benefit the consumer?” and considered the rise of in-game currency. For the sake of discussion, I’m going to ignore the topic of NFTs, Play to Earn, and crypto farming through any means and how that factors in, though the argument can and should be made that all of the above can be done without the use of any blockchain protocol and shouldn’t need systems that are immutable. The idea I’m proposing is more along the lines of a Wise (formerly known as Transferwise) for in-game currency.

Moving your V-Bucks to Aeos Gems

In the model of transferring in-game currency, there is always an exchange rate. Taking Aeos Gems from Pokemon Unite for an example, you can buy approximately 60 gems for $0.99 and you can buy 1,000 V-Bucks for $7.99. What happens if you buy more V-Bucks than you can spend? Given the current pricing of skins, emotes, and items on Fortnite, you could have a leftover sum that wouldn’t be of any use unless you wanted to double down. Taking the main premise that gamers are polygamous, my main theory is that it would be a net benefit for engagement if gamers were enabled to transfer their unspent in-game currency to other games with their same account. 

Transferring V-Bucks to Gems would be managed via a simple ledger that could translate between the currencies creating a paper market similar to our banking system, but without the need or want to generate new currency to support the float. 

Problem statement

As a user, I spend money on games that I enjoy, but those transactions to buy in-game currency are a sunk cost. I would like to be able to use those funds across the games I have and pick and choose how I’d like to allocate those funds. I want the power of choice when playing games and upgrading my character and their items. 

As a player, I want to do the following so that I can preserve the value of the funds I spent in the games I play and enjoy:

• Create a central account that lets me know and track all the places I’ve spent money to gain in-game currency – the amount of funds spent to gain the currency would not matter universally given this is sunk cost – games do not give you the option to “cash out” today
• Understand where my funds are transferable and be able to seamlessly move those funds between games to make sure I’m not wasting the funds I’ve earned
• Be given gifts from family members to a more central account where I can allocate my funds to any of the in-game currency systems that I choose

As a developer, I want to enable the following so I can attract new players and keep existing players engaged with the platform:

• Gamers can take their purchased in-game currency off the platform at a rate of my choosing
• For holding currencies and providing a service, developers would pay a fee of USD on every transaction between games to the business
• The sending and receiving games should be given part of the transfer fee awarded to the business as a way to continue to incentivize both further business and reduce potential negative impact of customers pulling their funds off the platform

As a Business, I want to enable the following so I can continue to run the business

• Promote heavy security – multi-factor authentication, security engineering to prevent DDoS’ing of accounts, secure checkout
• Enable transactions to buy in-game currencies at discount prices: where we may have players who want to get rid of their currency, we should allow them to do so to other players and collect a fee on top of that
  • This means there are 2 methods for cash to in-game currency: 1) purchasing in-game currency through the game or 2) purchasing in-game currency from other players
• Cash offramps to run the business would be enabled via the player to player transactions or the fees collected for facilitating transactions between games
• Constant currency conversion checking to ensure no arbitrage is possible between games or a minimum $ fee to cover the possibility of arbitrage which may dissuade users from the service

Why would studios and publishers get onboard with this?

When onboarding customers to a new game, the hardest part is getting bought in to the game. This is why developers create tutorial stages that offer heavy in-game currency rewards or easy leveling at the onset of a new game or other mechanisms that allow players to get “bought in” extremely quickly. In this business’s paradigm, the core concept is that, at launch, players can bring over the currency or currencies of their choosing to support their initial steps to a new game and be bought in faster and more efficiently. 

This not only gives the developers a sense for engagement and longevity of the customer, but gives the player the feeling that their sunk cost of the in-game purchase hasn’t gone to waste sitting in an account that they may no longer use. The benefit to that is that users can always move their funds back to continue to use them in a way they see fit at any platform they want.

What are the risks?

The biggest risk is the movement of funds to fuel a zeitgeist. That is, as new games, new excitement, FOMO, etc. comes about, the transactions fueling the system will continue to grow, but the game developers may see an excess outflow of the currency on their platform to other games. There is a pro and a con to this; the pro: customers will be able to utilize the currency from a game they no longer have an interest in, but can always move it back as they see fit. The con: leftover currency may act as a retention mechanism for some games – as a result the incentive for customers to pull their funds over

The second biggest risk is the prevalence of currencies and exchanges – each game has its own virtual currency with its own exchange rate. As there are thousands and thousands of games that use in-game currencies, we’d need to support each one over time and enable conversion between at rates that may not be possible to support (e.g., partial cents). As a result, the complexity of the system may be vast and those in-game currencies can change in value due to sales, one-time events, or other promotions making the currency value change. 

The third biggest risk is that players may see the amount they leave over in other accounts to not be sufficient to go through the friction of moving it. I see this as relatively low risk because the gaming industry has so much money spent in it, it would be hard to imagine leaving $10 worth of currency behind to have to re-spend it somewhere else, though for the game developers, that’s $10 worth of currency they may never see again, but again, it’s a sunk cost. The market has already been made and the transaction on that gaming platform cannot be undone. The strategy of this company would be going after the transfer fees and creating a more enjoyable, engaging experience for the customer.

Why not use a Blockchain?

The main reasons I don’t mention NFTs or Crypto is because of a) transaction times and b) the introduction of unnecessary complexity. Transaction times is a pretty well-documented problem in the crypto space that difference tokens are working to address and improve. At the same time, the speed at which APIs can be called, a ledger can be updated, and a transaction from a debit/credit card can be processed is a few seconds – even at its fastest, blockchains today operate on a scale of minutes. There’s also the problem of gas fees, handling chargebacks/disputes and fraud, and the fluctuating value of the token held unless you back that token via a stable currency (e.g, GUSD or USDC). This is a massive hole to go down in and of itself.

The introduction of unnecessary complexity is another one that, in my view, needs to be avoided at the startup level and, as a company scales, causes a minor amount of churn that can be avoided. Complexity due to new or nascent technologies is not necessarily a bad thing, but the problem comes in two fold: 1) limited availability of this new technology on the market means the hiring market is small and 2) the introduction of a blockchain to this problem isn’t necessary. In this scenario, introducing a blockchain for this type of business model is using a solution for a problem that doesn’t exist. Like I mentioned before, the system could be a simple accounting ledger of which accounts or customers (another rabbit hole: “how do customers relate to accounts?” that I won’t get into) have which currencies and where do they want to move them. Ledgers do this perfectly well and have done this well for over a millennia – the APIs and systems that work with that ledger alongside the user-facing experience either on its own or within other games is the key to making this work which don’t need a solution like a blockchain or anything relating to crypto.