In the latest episode of the Blockchain Gaming World podcast, editor-in-chief Jon Jordan talks to Pixels CEO Luke Barwikowski about the game’s forthcoming adoption of the new Apptokens standard, which as well as seeing the launch of the spend/stake-only vPIXEL token, will also herald a new staking model, which will use the PIXEL token to boost marketing for Pixels and its partner games.
BlockchainGamer.biz: Compared to a year ago when you were last on the podcast, Pixels has seen a strong drop in daily activity and token price. What’s it been like working in this environment?
Luke Barwikowski: How I view this is that a good market is obviously great. Everybody wants that but a good market can hide mistakes a company is making. It doesn’t mean that the company is executing perfectly just because there’s a good market and some things are going up and to the right. This is actually a danger in web3 because sometimes things have been going well and it’s not because of what you’re doing. It’s because of these external forces too and you’re not really figuring out some of the important flaws of your business.
I’m still of the opinion that great companies can move counter to markets as Pixels did in the bear market last time. Pixels came from nothing and performed counter to the market. Now we’re probably trending with the market, which means some of the flaws of our thesis in its original version are getting exposed in certain aspects too. And that’s not a bad thing, right?
Because web3 gaming is early and what we need to be doing is figuring out what the issues are that solve the fundamental issue of how to make web3 games work. Some of the stuff we were doing was directionally correct. I still stand by that. But then we figured we needed to add in new mechanics that fix some of the fundamental issues of web3 gaming. So we have a much better picture now of how to make web3 games work.
We know the things that have been working. There are very clearly things that have been working well for Pixels historically and have been an insane competitive advantage against web2 games. You can’t deny what Axie Infinity, Pixels and some of the web3 games that have become more mainstream have done. But at the same time, there’s still a lot of work to do to make them sustainable and stay in the game for the long run too.
So what parts of the game are you looking to fix?
A lot of the work that we’re doing is evaluating what the key metric is that moves the needle for the goals we have. What’s the goal? We want to build a fundamentally-sound ecosystem and we want to help the Pixels ecosystem become as healthy as possible. This means spend is very important in this ecosystem. Net revenue for the ecosystem is something we’re looking at quite heavily. DAU is a secondary metric that can help but it’s not the primary metric.
A lot of what we’ve been talking about lately is quality DAU and building out towards net revenue. It’s funny because one of the metrics we’ve been known for has been daily active addresses. And it’s funny because I have not been the one promoting that metric. We just had high daily active addresses. The metric I’ve been trying to talk about for the last year is this idea of Return on Reward Spend.
The key metric we’re looking at is Return on Reward Spend. It’s more of a measure of net revenue. It’s asking are we able to use the PIXEL token to grow the ecosystem in an efficient way that can compete against the traditional UA methods of ad-driven user acquisition? In order to do that, we’ve had to change up our strategy a lot.
One of our earliest thoughts was if we have high daily active addresses, we will convert a percent of those into paying users, like the free-to-play model. And that still holds true, but the conversion rate was much lower than we were originally hypothesizing.
How we view user activity inside of web3 gaming, and web3 in general, is there’s a spectrum of user quality. On the furthest to the left of this spectrum would be the bots. A little bit further right, it’s the airdrop farmer. It might be a real user. They might be multi-accounting 10 accounts. They’re real people, but their end goal is max extraction. And then when you go all the way to the right, it’s the ideal quality user. There are actually web3 enthusiasts who absolutely love web3. They’re more than willing to purchase assets just because they love it. They want to support ecosystems.
A lot of the questions that we’ve been having are around whether there’s some value from some of these users that are further to the left? Where do you start to draw the line on where they become beneficial to the ecosystem?
This is a similar question that a lot of free-to-play games also ask themselves.This isn’t unique to web3. But what is unique to web3 is that the curve goes further to the left when it comes to the user quality. Web2 games struggle with bots. Look at any MMO like Runescape, World of Warcraft, EVE Online. They spend a lot of time doing bot prevention detection because there’s still currency farming in these games.
The reality is, and what we’re starting to learn is, you’re never going to be able to convert some of these users into net paying users. You might get spend. You might be able to turn a bot or these farmers into a spender, but they’re never going to spend more than they put in.
There can be other value these participants might produce into the ecosystem. I think the way we’re starting to frame these users is we want to consider every user a contributor to the ecosystem. Not every contributor needs to be spending money. There’s a lot of contributions that users can make which helps make the ecosystem a bit stronger and might lead to other people spending money.
But our original thesis of giving out too much PIXEL just to boost DAUs was not quite correct. Quality DAUs and converting users into net spenders is about building out incentives that lead to higher quality. Users who will net spend is the important metric.
Can you explain why you’re using Apptokens and what your first impressions of the protocol was.
I wouldn’t say it was very obvious at first, but it’s obvious now. If you go and read Limit Break’s spec about Apptokens, it’s extremely complicated. There’s a lot that’s going to be unlocked with these specs in the long run. Our implementation is simple.
A lot of the work that Pixels’ been doing is on the data science side. I’m very interested in reward attribution – figuring out when I give a reward to a user, what do they do with it? Are they selling it? Are they using it in-game? Are they holding onto it? All these things really matter. And the type of reward that I give out matters too. There’s different types of rewards, doing different things that are trying to achieve different goals.
But when it comes to making a great web3 game, I think there’s three parts.
- The game needs to be a good baseline experience. It has to be fun, enjoyable, and people need to be able to play the game for the love of the game without any incentives. The incentives are the thing that supercharges the growth; the layer on top that makes web3 games competitive against web2 games. But if you don’t have that fun aspect, none of this is going to work.
- The second part is reward attribution. The stuff we’re doing with data science is a very necessary part of the stack. If you don’t do that, you’re going to give out all of your rewards to bots, all of your rewards to the dumpers. You basically want to solve this problem from the start.
- The third part is you want to create systems that align the interest of the game and the players. ERC721C, the first royalty enforced NFT collection, is a great example. I’ll dive into Apptokens after, because I think this makes a lot of sense for people.
When a very high conviction user of an ecosystem buys an NFT and there’s no royalty enforced, there’s this weird misalignment between the game and the user. The user spends thousands of dollars on an in-game asset, purchasing it from another user. But the original seller of the NFT, the game, doesn’t receive any revenue if there’s no royalties enforced.
There’s no incentive alignment between a secondary purchaser and the game. Why should the game care if a user spent thousands of dollars on an NFT if they don’t get anything from the transaction? You want people to want to support each other out of the goodness of their hearts but that’s not how it works.
ERC721C enforces royalties. It can blacklist exchanges or NFT markets to ensure royalties are enforced. This recreates alignment between the player and the game because the game is receiving revenue on the secondary sale so they’re incentivized to go out and create actual utility in-game for these NFTs.
You can think about it the same way with an ERC20C. What we’re trying to figure out is how you can use different rules and different mechanics to keep alignment between player and the game.
One interesting thing is we were doing a lot of data science with earnings. We were targeting earnings more towards users who wanted to spend the token. There’s only so many of those users that we can tap into though. There was still a large majority of our user base that would earn tokens, sell them immediately, and basically hold zero token balance. And that’s interesting because that’s misalignment between game and user.
Our end goal is we want to to give out tokens to people who want to use them inside a game and who actually want to stay in the ecosystem for the long term. We lacked an ability to do anything about that after we gave them the earnings. They would just withdraw, sell them, and it hurts the people who love the game and the ecosystem. So what Apptokens can do is we can introduce a concept now where we can reward the people who want to use the token more.
An easy example of how we’re going to be implementing Apptokens in the first stage is we’re introducing a new companion token to the PIXEL token. It’ll be called vPIXEL and will be backed one-to-one with PIXEL. And if you want to use vPIXEL inside a game, it’s the same thing as using PIXEL. It’s one to one with PIXEL.
But it’s a spend-and-stake-only token. We’re gonna be giving vPIXEL out to people but it won’t be able to be traded on an exchange. You won’t be able to sell it. It can’t be wrapped. If people want to turn their vPIXEL into PIXEL, they can either do that in-game and pay a fee, which will be distributed back to the people who are holding the token or they can use it in-game like they normally would with PIXEL. This combines with something we’re doing around staking.
When it comes to game mechanics, we’re trending in the right direction. Smart rewards – we’re trending in the right direction. But the core token fundamentals are a little flawed. The token rewards were a little too liquid, and this created misalignment. There was no reason to hold the token. So what we want to do is preference people who are more likely to use the token through the tokenomics and the fundamentals of the token.
If they want to hold the token or spend the token, they’re not penalized. If they want to sell it, they pay a fee, which is distributed back to the people holding the token. Apptokens are basically the only way to do this onchain. It also made a ton of sense because we have more than one game in the Pixels ecosystem.
And it’s a win-win for players who care about spending the token. If the player wants to liquidate the token and sell it on an exchange, then a fee is now paid. That goes back to players and people in the ecosystem who have long-term conviction. They can use the vPIXEL token in partner games as well. It’s a really simple, elegant solution. And it’s really only possible with Apptokens if we want to make it work inside of the ecosystem.
How quickly do you think this becomes an industry standard?
I’m so confident that this thing we’re doing where you have a spend-only token or the liquid token and then there’s a fee to convert, I’m so positive this is going to be industry standard quite soon. This is one of those things that just makes a ton of sense. Why would you not do that?
Can you talk about how the PIXELS token is being used in other games?
What we’re doing with our staking system is unique and cool. I’m very excited about it. It’s like a decentralized publishing model.
In terms of the PIXEL tokenomics, 28 million PIXEL is given out to the ecosystem every month. Most of this goes to Pixels, but the goal of the ecosystem is to increase Return on Reward Spend and build out a sustainable playerbase. So one of the things we started to experiment with is what happens when we give other teams some PIXEL token? Are they also able to build out sustainable play-to-earn mechanics? Are they able to generate a better Return on Reward Spend than the core Pixels game ?
So how our staking system will work is when you go to stake PIXEL, you’ll have to choose a game. You could choose core Pixels, or Pixel Dungeons or Forgotten Runiverse or a bunch of other games that are going be joining too.
The more PIXEL is staked to a particular game, the more PIXEL that game is going to get to give out to incentivize their players to join the ecosystem. Essentially, players in our ecosystem will have a vote on where the ecosystem incentives go.
These games will then be able to go out and give rewards to their stakers. These games will have the option to give out whatever rewards they want, but in order to be competitive, they’ll need to give out competitive staking rewards. That will help them get more PIXEL to give out to their users. So the higher Return on Reward Spend that they have, the more in-game revenue that they’re generating, and the more potential they’ll have to give out more rewards to their stakers to go out and acquire more users.
Basically we’re creating a decentralized publishing system that more games can join.
How curated will that list be?
We will be curated for the first stages. We’ll let games in one-by-one. But we want to open the floodgates eventually. Not even that long from now. Because the system becomes much better when the Return on Reward Spend is greater than one.
The end goal is we curate the first couple of games and when the Return on Reward Spend is greater than one those 28 million tokens become an user acquisition incentive. When you give out 28 million tokens but 30 million tokens are returned to stakers, it starts to get interesting as we build out that model. If 40 million comes into the ecosystem, maybe the ecosystem takes a 10% cut but we give out 32 million in rewards the next month across all games.
But we have to bootstrap that flywheel. There’s still no game in web3 that’s consistently over one in terms of Return on Reward Spend month-on-month. When we start to get there and we help the initial games bootstrap, things get much more interesting.
Do these games have to be on Ronin?
We’re working on multichain support for games. We want to publish games on other chains as well. Our staking system will probably stay on Ronin but we can also support other chains for this publishing system. But core Pixels and the heart of the Pixels’ ecosystem is going to stay on Ronin.
How does core Pixels fit into this ecosystem vision long-term?
I have to wear multiple hats as I’m building. My company is building out the core Pixels game but you can also view me as a contributor to the Pixels ecosystem. As a contributor to the Pixels ecosystem, I have a duty to make sure that the Pixels ecosystem is the best spot too. So in my CEO hat, I want core Pixels to perform the best. But in my contributor role to the Pixels ecosystem I have to make sure that Pixels is also performing healthy as well.
If core Pixels isn’t performing well in the short run, it’s not going to be very attractive to other people to join the ecosystem. We need to prove some of the stuff we’re doing is working, that it makes sense to join the ecosystem, that the players in the ecosystem are good players to incentivize and help acquire.
We also have an easy feedback loop where we can go and try things out in the core game, experiment quickly, because we have connections between both. Even in the core game team, we’re focusing on multiple things.
We have another app coming out probably in June or July. That’s a mobile-first app centered around pets, a Tamagotchi-style game, which is designed to target a completely different audience than core Pixels.
Find out more on the Pixels’ website.