Splinterlands - An economic system explained

Ponzi schemes are illegal.gif

Did you ever try to describe your experience while playing Splinterlands to somebody else, who has not had any contact with Blockchains, Cryptos, or even the recent gaming trends?

Well, I recently tried to describe my experience to a couple of friends who did not have any background with this. I wanted to convince them to just give Splinterlands a try and see how easy the game can make the first entry into the Crypto space.

I did it back in Nov 21, so I was asking myself: Why shouldn´t they also be able to learn and see this as an easy first entry into Crypto and Blockchain Gaming?

It did not end well..

Unexpectedly, I kept running into the same questions:

How can this earn any money? There is only the money others have put into the system.
Is this a serious and trustworthy thing? I always only think about criminals when I hear about Crypto.
Won´t they just run away with our money? There is obviously no control in this space.
How can they just keep creating stuff out of nothing? Thats obviously a scam.

The fear of the unknown is alive and thriving in the world of today

This post is kind of a written response to the problems and questions I ran into in the hope that it will also help you in your talks with friends to address their logical and illogical fears. So we can keep building a bigger and even better community together.

The main question that needs to be answered is how the ecosystem of Splinterlands is set-up and if this set-up can be considered a scam

Splinterlands Economics Intro

This shall only be a rough overview of the main tokens of value exchange in the system. If you find it interesting I´m happy to include the other tokens of value in an additional overview (e.g. land, cards, packs, etc.)

Credits

Source: Can be bought directly from the company with Fiat or other Cryptos and can be earned by End-of-season rewards as well as Daily quests
3rd Party: Can not be bought via 3rd parties
Usecase: Can be used to purchase Card packs, card rentals and card purchases on the (3rd party-)market, as well as for potions
Supply: Unlimited

Value
Credits are an easy categorization in terms of economic importance as they are more or less the equivalent of the Web 2 in-game currencies you know from other regular games. 1000 Credits are the equivalent of 1$ as designed by the company. So the easiest way to think about credits is to just consider them fiat as there is a fixed conversion rate.

Credits are probably the main direct source of income generation for the Splinterlands company in interaction with the players as they are needed to buy Chaos Legion packs.

Dark-Energy Crystals (DEC)

Source: Can be bought directly from the company with Fiat or other Cryptos and can be earned by End-of-season rewards as well as daily quests or tourneys
3rd Party: Can be bought and be sold on market places like Hive Engine and others
Usecase: Can be used for card rentals and card purchases on the (3rd party-)market, as well es a currency to buy Credits and Skins. Can also be used to buy/upgrade guild buildings and to pay tourney fees. Also counts for the currently ongoing SPS Airdrop to receive more SPS the more DEC you have.
Supply: Unlimited

Value
Dark Enegry crystals are the utility/reward tokens of the game and therefore already the first unknown for people without any connection to blockchains. There is no hard conversion rate to fiat. There is only a soft conversion based on the underlying algorithm of player rewards that tries to stabilize market price for DEC around 1000 DEC for 1$.

You can simplify it like this: Check for every reward pool if price of DEC > 0,0001$--> If yes, then decrease total reward pool. If no, then increase total reward pool

This means that value of DEC tokens fluctuate with market sentiment on the current use-cases. If a use case expires (e.g. SPS Airdrop end this year) the price can be expected to decrease. If a new use case is developed you can expect the price to increase.

Splintershards (SPS)

Source: Can be bought directly from the company with Fiat or other Cryptos and can be earned by staking SPS. Further ways are currently in development.
3rd Party: Can be bought and be sold on market places like Hive Engine and others
Usecase: Staked SPS generate additional SPS staking rewards and will generate Vouchers (which are required to participate in promos or to get bonus packs). A set amount of staked SPS is often needed to participate in tourneys. It is also expected for players to only be able to buy the next card set Riftwatchers with SPS. Further use-cases are still in development
Supply: Capped at 3 Billion

Value
Splintershards are the governance token of the game and therefore another unknown for people without any connection to blockchains. A governance token is meant to be used for the governance decisions of the game like design focus and new features. There is no hard conversion rate to fiat. There is not even a soft conversion like the DEC mechanism.

This means that value of SPS tokens fluctuate wildy with market sentiment on the current use-cases. If a use case expires or changes in value (e.g. Vouchers during the Chaos legion pre-sale) the price can be expected to decrease. If a new use case is developed you can expect the price to increase.

So, how could this be considered a scam

The definition of a Ponzi scheme according to the government

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise high returns with little or no risk. Instead, they use money from new investors to pay earlier investors and may steal some of the money for themselves. With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

So lets check this definition Vs Splinterlands step-by-step:

Existing investors are paid with funds collected from new investors

You do not get paid by Splinterlands. So there is no direct & regular flow of fiat money from the company to players. You get rewarded with Credits, DEC and SPS by playing which could be considered a payment.

All three tokens can be used to purchase ingame items like packs & cards, but as these are digital goods which have already been created they do not represent an outflow of money from the company. Credits can also not be transfered out of the company eco system so there is no money outflow for the company. While DEC and SPS can be transfered out of the eco system to 3.rd party exchanges, there is no guaranteed exchange with the company but only with other 3.rd parties.

--> We can disregard this point of the definition

Ponzi scheme organizers promise high returns with little or no risk

No company advertising promises you any returns. Most adds talk about the potentials of NFTs and the historic value development or the fun game, but there is never any guarnteed returns. At least not in the texts I have seen

--> We can disregard this point of the definition

When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse

Let´s do a thought experiment here: What would happen if a large number of players sold their cards,SPS and DEC to cash out and no new players would enter the game?

Card prices would decrease dramatically, the price for SPS and DEC would probably also decrease extremly because of decreased demand. But the company would not just collapse. They have no directly play related money outflows in this case and only need to pay their people, their servers and the typical company expenses. So as long as the existing people keep playing and keep buying packs, the game will survive.

--> We can disregard this point of the definition

As you can see in the quick analysis, Splinterlands is no scam in the classical definition.

But keep the result of our thought experiment in mind

The valuation of Splinterlands assets like Cards, DEC and SPS depends highly on the number of players and the demand for these assets in the 3.rd party markets.

Every investment carries risks and the main risk of Splinterlands assets (besides developer erors that crash the game) are user and content related.

If we stop growing and start shrinking in number of users, we also stop attracting new money to enter the system and start losing money from the system. If the system starts loosing money, prices will automatically drop. If the developers release a massive number of new cards without use case adjustments for the old cards, we also loose value on the existing assets.

Thanks for reading. Let me know what you think in the comments.

If you do not yet play this fascinating game, feel free to use my affiliate link and send me a message afterward. I will send you my reward for your sign-up in DEC (~5% of 10$) to get you started with some rental cards after you have purchased the Summoners Book.