Houses of Rome: Tokenomics 2.0
We worked from four core principles in designing Tokenomics 2.0 for $ROME:
- Those who have the highest conviction in $ROME and are willing to take the most risk with $ROME should earn the highest potential rewards and have the most say in the governance of the game;
- Because $ROME will be the core currency for the Houses of Rome ecosystem, players should be confident that $ROME will not be devalued through hyperinflation;
- The economic incentives should be designed to push players into more interesting, more fun, and more value-accretive forms of gameplay; and
- The game economy should be designed with the long-term view in mind as Houses of Rome should have lasting power rather than burn out with unsustainable economic principles.
Let’s explore each of these.
Vote Escrowed ROME (or veROME)
To accomplish the first objective, we will move from a liquid staking and rebasing model to a vote escrow (or vote locking) model. $ROME holders will have the option of locking their $ROME for anywhere between 2 weeks and 3 years. The longer you lock your $ROME, the more voting power you have (and greater share of vote-locked rewards you can earn).
The initial vote-locked reward pool will be set at a fixed percentage of total $ROME supply, which will decay over time until reaching a low floor for tail emissions. The fewer participants that have locked their $ROME, the larger each locker’s share of the vote-locked reward pool. Conversely, the more of the $ROME supply that is locked, the smaller each locker’s share. In addition and as mentioned above, each locker’s share will be modified based on the length of time they lock their $ROME.
The initial vote-locked reward pool will be sized such that, assuming 50% of $ROME supply is locked and all participants lock for an equal length of time, then each participant will receive rewarded $ROME at 100% APR. Since we cannot predict how much $ROME supply will be escrowed and since each participant’s locking duration will vary relative to other participants in the ecosystem, the actual APR on an individual basis will range both above and below this target. For example, if you lock for double the average locking duration, your individual APR would be roughly double the average APR.
The vote-locked rewards will accrue on a block-by-block basis and can be claimed by lockers at any time. The locker’s underlying escrowed $ROME will remain unavailable until the expiry of their chosen lock duration, which duration can be extended (but not reduced) by the locker at any time.
These mechanics will ensure that those with the highest conviction in $ROME have the most say in the governance of Houses of Rome and receive a higher percentage of rewards. The decaying emissions also encourage early participation.
Mitigating Inflationary Pressures
To accomplish the second objective, we rely on three different mechanisms:
- Reduction in emissions;
- Replacing emissions with revenue; and
- No additional sudden inflation or unlock events.
Reduction in emissions
As noted above, emissions will be reduced from our current high inflation rates to a much more reasonable rate, which will decay further over time. In addition, while the protocol will continue to issue $ROME to acquire liquidity and manage the Bank of Rome’s balance sheet, these bonding tools are expected to be used selectively in times of high demand.
We have secured over $26 million for the treasury, including almost $6 million in liquidity. These amounts are more than sufficient based on our current market cap and will need to be expanded only as the market cap multiplies.
Replacing emissions with revenue
The above reductions in issuance, by themselves, would be sufficient to ease any hyperinflationary concerns. However, our goal over time is to remove inflation through vote-locking emissions entirely as the game launches and as it begins to absorb $ROME through core game mechanisms.
As we will discuss in a later article, Houses of Rome will contain a number of “sinks”, the most significant of which is the marketplace fee and/or royalty on the sale of items. These sinks will be designed to remove $ROME from circulation without overburdening players and affecting the enjoyability of the game.
The $ROME absorbed through these sinks will be first directed to the vote-locked reward pool to offset the inflationary emissions. As game activity increases, the composition of the vote-locked reward pool will become less and less inflationary and more and more of a revenue loop.
To illustrate, let’s say that we are allocating 2,500 $ROME to the vote-locked reward pool to be split amongst lockers daily. Initially, the 2,500 $ROME will be newly minted and inflationary. If there’s $1,000,000 of monthly marketplace volume, the price per $ROME is $15, and the marketplace fee is 5%, then ~100 $ROME per day can be directed to the vote-locked reward pool and only ~2,400 $ROME need be minted. If $5,000,000 in monthly volume, then only 2,000. If $10,000,000, then only 1,500, and so on. The more activity and the more sinks in the game, the less inflation for $ROME.
The game will launch with a number of carefully designed sinks, but we expect to iterate over time, adding new sinks and adjusting existing ones to achieve optimal results for both players and lockers.
No sudden inflation or unlock events
As we will discuss in a later article, Houses of Rome is unique in that there are no VCs or other middle men who are vesting and unlocking with a zero or low cost basis. For many GameFi projects, as much as 40% of total supply is vesting and unlocking for VCs and founders in the background, adding a hidden cost that must be borne by existing and new participants.
For Houses of Rome, less than ~8% of total supply has been allotted to founders and the core development team. The token supply is otherwise fully in the hands of the community.
In addition, because of the completely variable locking nature of the vote escrow contract, every participant will be unlocking their escrowed $ROME positions at different times, with no particular day or time resulting in a mass unlock event.
These two protections mitigate inflationary pressure from large amounts of $ROME suddenly entering circulating supply.
Incentivizing Player Behavior
We have discussed so far how to reward lockers and how to protect players from hyperinflation. But a core element of our tokenomics revolves around how to reward the right player behavior.
Houses of Rome is designed so that any player can join the game, create a character, begin playing, begin farming, and begin trading resources they’ve farmed for some return. No player has to participate in governance or demonstrate their commitment by vote-locking $ROME tokens. They can play purely to extract as much $ROME as possible by spending their time, attention, and engagement.
While we don’t want to impose any roadblocks to prevent this, we do want to create incentives to do more. We want to push our players into more engagement and, with more engagement, into higher levels of gameplay and core gameplay loops. The more engaged our players are in the game, the more sticky the game becomes and the more value players are willing to put in, rather than simply extract.
As we discussed, marketplace activity is a core sink within the game’s economy. We want to encourage players to move from just farming to crafting and to trading. One of the mechanisms we will use to do this is a rebate within the marketplace fee design.
This rebate will take a portion of the marketplace fee and distribute it back to buyers and sellers as trading rewards. In this way, traders will earn profits in $ROME not just from their sales but also in cumulative $ROME rewards for trading activity. (Wash trading will be unprofitable since the majority of the fee still flows away from the seller.)
Building to Last
A game can sustain itself on demand from new players for a while but at some point growth in the player base will slow down or stop. At that point, the game will survive only if at least some players are motivated to put value in rather than all players looking to simply extract value out.
Our goal is to leverage game design and rewards to push players into becoming value accretive for the protocol rather than purely value extractive:
While the marketplace fee rewards will encourage value extractive players into activities that are more value neutral, we can do more. Players have to be motivated to spend $ROME to buy items, whether for competitive gameplay reasons or for social status reasons. They have to be interested in accruing veROME to have influence on gameplay decisions. They have to be encouraged to participate in the community and build social connections, which will in turn increase the collective desire to improve standing within the community.
Designing a fun game will do 90% of the work here but, in crypto, we have additional tools in our toolbelt. As we noted above, $ROME that is removed from circulation through in-game sinks will first work toward nullifying vote-locking inflation. As we add more sinks to the game, as game activity increases, and as the locking reward rate decays, the amount of $ROME collected from the game will outpace the amount of $ROME needed for the vote-locked reward pool.
All such excess $ROME will overflow to a player incentives contract. This player incentives contract will be used to reward players as they move along the net value flow axis, from outflow to inflow. As players complete raids, unlock certain parts of the story, eventually compete in PvP, and otherwise perform in-game actions that indicate high levels of engagement and interest, they will have the opportunity to earn additional $ROME. This $ROME will be non-inflationary as it simply re-routes value extracted from the game to activities that drive the most value for the game.
We have a number of ideas for what activities should be incentivized, but we welcome community input along the way. We also have a number of ideas, which we will share in a later article, for how to gamify House structure to further incentivize participation, governance, locking of veROME, and ultimately close community within each House. These social and political elements we believe will be one of the critical factors distinguishing Houses of Rome from other games and provide the fuel to make the game last for years.
Note that, ultimately, all decisions regarding what to do with the excess $ROME in the player incentives contract will be decided by the DAO through veROME voting. Lockers could, of course, vote to redirect incentives to themselves. We have confidence, however, that because long-term lockers have the most governance power, these participants can accurately evaluate the long term benefit of incentivizing player growth on the value of their locked tokens (especially in a low inflation token) over the short term benefits of receiving more supply.
One final point is the topic of a token split. We propose a roughly 1:100 split to inflate supply to 150M token target. Participants in ROME will need to migrate their tokens from the current contract to the new ROME for the split. This inflates to our target supply and sets unit bias/price targets aligned with a game currency. More modeling work and discussion on this front required and will be included in the final proposal.
There are a number of detailed elements on game economy design (e.g., resource inflation, item inflation, item balancing) that we have not covered here. We will share plans for these elements through later articles to go in-depth on the game mechanism design pieces that we've spent a few months designing. Each of these pieces are either an ongoing spec or have been in the implementation phase from the contracts team. We hope, however, that the conversation can first start with the focus on the updated mechanisms of Tokenomics 2.0 outlined above. The scholars will be following with a proposal for how we should manage the transition over the next few weeks and months to Tokenomics 2.0 from our current state.